CEO Succession: Getting it Right
Ensuring the right CEO is leading the organization is one of a board’s most important responsibilities. It may also be the most difficult. According to a study by Gartner, 74% of public-company directors believe that maintaining a robust pipeline of internal talent is the most challenging aspect of CEO succession, yet only 40% of board members are confident that their current succession plans provide good candidates.
In the current environment, where change is a constant and CEOs are called on to manage an ever-broadening number of stakeholders and agendas, it’s never been more critical to ensure there is an evolving and effective process for identifying and developing viable internal CEO candidates.
Below are a few key actions to help establish a robust CEO-succession-planning process.
- Begin with the end in mind. Given your organization’s strategy, the external business landscape, and potential head or tailwinds, what is needed in the next CEO and other C-suite leaders? What kind of skills and leadership behaviors will be required, and are the board, current CEO, and CHRO aligned with these? At RHR, we call this list of qualifications The Winning Formula® profile. Defining an effective profile requires discussion and debate to highlight hidden assumptions and contradictions; it is not the simple drafting of a document. The profile creates a critical touchstone that can and should evolve over time as the organization evolves.
- Estimate potential succession time frame(s) and work backward. What kind of experiences would the next CEO (or successors for other mission-critical roles) need? Important feeder experiences are in limited supply and take time. For example, for a GM role or higher, at least three years in a role is necessary to really understand the business, lead through the different cycles, and reap the benefits or problems of earlier decisions. A shorter tenure will expose a leader to different aspects of the business but will not create the same solid foundation on which to build. Ask yourself what chess moves need to be made—and when—to ensure key talent is gaining the necessary skillsets and experience. Many find this exercise creates a heightened sense of urgency to take the required risks and make developmental moves in the pipeline earlier than intended.
- Combine external, objective data to help highlight individual strengths and gaps. Bring together internal performance data, input from senior leaders and external assessments to enhance objectivity. This process should include a combination of tests, assessment interviews, and 360 feedback by a qualified expert. Bear in mind that people develop (or not) over time, so updated information is important to ensure perspectives reflect current reality.
- Go broad and deep in identifying potential successors. Assumptions and hidden barriers can push aside or block individuals with considerable capacity to scale if given opportunity and support. And, what is needed in leaders can evolve over time. A broader net can create greater flexibility and options.
- Engage with executives. Boards should be interacting with key executives two to three layers below the C-suite to get to know these individuals and evolve their perceptions as the individuals learn and mature. Site visits, mentoring, and board dinners that include a rotating series of leaders are all options that benefit the executives and board members.
The process to ensure there is a robust CEO pipeline should begin the day after a new CEO starts and requires discipline, attention, and candid conversations, including at the board level. Done well, the organization, the stakeholders, and the board benefit (and directors can sleep better at night).
At RHR International, we help some of the world’s most influential companies build their succession plans. As we are completely independent and focus only on leadership assessment and development, our expertise is fully objective.
Deb Rubin, Psy.D.
Senior Partner and Head of Board & CEO Services
RHR International LLP